Breakfast cereals rise and shine in the Middle East

Despite strong sales growth in recent years, the Middle Eastern breakfast cereal sector has plenty of room for growth.

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By  Roger Field Published  May 9, 2006

|~|Tomlisnon-200.jpg|~|Martin Tomlinson, general manager for Kellogg's in the Middle East, is optimistic about growth of the cereals sector.|~|Breakfast cereals, a staple part of the diet for many westerners, have been slow to catch on in the Middle East. While products from some of the world’s leading manufacturers of breakfast cereals, such as Kellogg’s and Nestle, have been present in the region since the late 1970s, it is only recently that these companies have turned their attention toward targeting local consumers as well as Western expatriates. Despite this, the category has achieved enormous growth in the past few years, as the expatriate population increases and local people begin to recognise the benefits of breakfast cereals. The category has experienced growth of some 16% in the past couple of years and has frequently been in the top-five fastest growing categories in Saudi Arabia, according to figures from market researcher ACNieslen. But while growth has been rapid, many industry insiders agree that the category has far greater potential. For example, the region’s biggest market for breakfast cereals, Saudi Arabia, has one of the lowest per capita consumption rates for the products in the Middle East, with western expatriates apparently accounting for the majority of cereal consumption. Other countries meanwhile, including Kuwait and Bahrain, have far more developed cereal markets, with local people consuming roughly the same amount as their Western expatriates counterparts. As Kellogg’s general manager in the Middle East, Martin Tomlinson is familiar with these trends. He thinks that a lack of awareness of breakfast cereals among local people is to blame for the relatively low consumption rates in some markets. “In the Middle East, cereals are seen as a fun product, they are not seen as a wholesome food. We need to drive awareness of the need for breakfast and educate people that cereals do provide the nutrients and vitamins and minerals to set you up for the day,” he said. “The cereal category in the Middle East is at an immature level compared with Europe where breakfast cereals are a part of everyday life, and everyone understands that breakfast is the most important meal of the day. In the Middle East the category is new.” The growth that is taking place in the sector is being driven by a large population of Western expatriates in the UAE and Saudi Arabia, and also by local people who are increasingly turning to breakfast cereals. Tomlinson hopes this is just the start of a trend that could see sales of breakfast cereals double in the next five years. Furthermore, Tomlinson views local people across the region as key to Kellogg’s growth plan, and to this end the company is investing heavily in promoting its cereals through strategies including television advertising and in-store promotions. “In the last two years, we have started to seriously invest in the category, targeting the indigenous population as well as the expat community,” he said. Walid Barrage, general manager at Cereals Partners, a joint venture between Nestle SA and General Mills, which markets Nestle’s breakfast cereals in the region, agrees that the local population need to be made more aware of cereals. “The most important challenge is to make consumers in the region more aware of the category and its health benefits. Low awareness explains why in Saudi Arabia the consumption per capita is a around quarter of a kilo whereas in parts of Europe and the USA this could reach as high as 8 kilos,” he said. “We certainly have a long way to go.” The proportion of overall consumption of breakfast cereals by locals and expatriates varies in each country, depending on how developed the market is, according to Tomlinson. Kuwait and Bahrain are the most developed markets for cereals, with a good mix of local people and Westerners consuming cereals. In Dubai, the category is being driven mainly expatriates. “Each market is different. The UAE is growing enormously and it has got a mature category. We have a significant market share so the future of the UAE is very important,” Tomlinson said. “Kuwait is our most profitable market and is growing by about 7% to 8% so again that is another area of opportunity. It’s traditionally a mature consumer market.” Saudi Arabia, one of the least developed markets for breakfast cereals in the Middle East, is also potentially the biggest market owing to a large, young population. The category grew by 16% in the past two years in Saudi Arabia, compared with an average growth across the region of about 20%, according to Tomlinson. “As a whole the opportunity is very big because the category is still very immature and we have the advantage of increased investment where we can tap into innovation and advertising,” he said. Kellogg’s has a market share of about 50% in the breakfast cereal category across the Middle East, although in some countries this figure is closer to 70%, according to Tomlinson. The company has about 18 SKUs with dual language packaging, although in some countries, such as Kuwait and the UAE, almost the full-range of Kellogg’s products are available. In KSA, where the sector is less well developed, the range is limited to the dual language products. “If you take KSA out of the equasion we have a significant market share in the Gulf. In KSA, we have about a 40% market share there, or just under.” Nestle is the market leader in Saudi Arabia, where it has a market share of about 45%, according to Barrage. Nestle is also market leader in Turkey and a number of North African markets, he added. Its most popular brands in the Middle East are Country Corn Flakes, Nesquik and Fitness. Potential for growth Despite a lack of awareness of the category in many Middle Eastern countries, Barrage is optimistic and thinks people are becoming more familiar with breakfast cereals, partly because of television advertising. “The category is growing in Saudi Arabia, mainly because of the development of satellite TV with significant advertising spillover; we get to see what is happening in other countries where the category is well established. All of this is supported by a substantial increase in disposable incomes due to a surge in oil prices,” he said. “I see these trends not only continuing but improving as consumer awareness and the tendency to eat healthily also grow.” Targeted advertising campaigns also appear to be helping. Kelloggs has increased its distribution in all markets across the Middle East and has tripled its marketing budget in the last two years. It has also put an emphasis on ensuring its marketing is designed for the Middle East, rather than just using European campaigns in the region. “Part of the danger of being part of a big conglomerate that is mature in the West is that you are going to be European led in your advertising, which is always going to be a mistake,” Tomlinson said. “Our marketing is much more local based and we are now less European-led. The other advantage from Europe is that we have access to successful marketing campaigns that we can adapt.” Tomlinson points to a campaign for Kellogg’s Frosties’ brand as one example of a marketing strategy adapted and designed for the local market. The campaign focuses on exercise, healthy eating, and features the famous Saudi Arabian footballer, Majid Abdullah. Given some of the misconceptions surrounding breakfast cereals in the Middle East, product samplings of cereals in supermarkets also form an important part of Kellogg’s strategy in the region. “Sampling is one of most important mediums because people are not aware of the products. There are lots of misconceptions about sugars, salts and minerals and we need to address them and be positive about them,” Tomlinson said. While Kelloggs and Nestle have a big share of the cereals market, together accounting for about 61% of the market, numerous smaller players are gaining ground. Utku Tansel, a research analyst for Turkey and Saudi Arabia with Euromonitor International, points to Poppins, a Lebanese breakfast cereal producer. Poppins, which manufactures and markets cereals including Flick Flakes, a brand of corn flakes, entered the Saudi Arabian market in 2002, and now has a market share of about 5% in the country. This makes it the fourth biggest player in Saudi Arabia after Quaker Oats, which has a market share of about 7%. Tansel added that Poppins’ products are cheaper than the leading brands and that the company has also invested in advertising and promotions, such as ‘buy two, get one free’ offers. “We expect that their share will increase very well in the next couple of years,” he said. Another local company, Saudi Arabia-based Food Products Co, produces cereals under its Wafra brand, and has a market share of about 4% in the Kingdom. It sells its products mainly in Saudi Arabia, but also exports some products to other countries in the region. Euromonitor International expects to see volume sales of breakfast cereals increase by about 42% by 2010, to reach a value of SAR 400 million (US $106 million). Children’s breakfast cereals will see the highest growth, with an increase of about 63% in terms of value sales, the organisation predicts. ||**||

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